Categories
Economics Economy Truth

Economic Impact Of Super Bowl Dwarfs That Of Government Shutdown

Rod Thomson

It does sometimes feel as though many Americans actually think the success of the American economy is due to the behemoth in Washington, D.C., rather than in spite of it.

When Friday’s job’s numbers came out, they gobsmacked the media and economic experts, who were expecting 170,000 at the top end and were greeted with 304,000. But those figures were considerably less surprising to those of us who view the government as a hindrance to private enterprise and economic well-being — not an indispensable necessity.

Now an additional data point comes courtesy of Americans’ spending on last night’s Super Bowl — unarguably one of the most boring in history.

“American adults say they will spend an average $81.30 for a total of $14.8 billion as they watch the New England Patriots and the Los Angeles Rams meet up in the Super Bowl,” according to the annual survey by the National Retail Federation and Prosper Insights & Analytics conducted before Sunday’s game.

Meanwhile, the partial government shutdown cost the economy $11 billion, according to a new analysis from the Congressional Budget Office. The CBO says that is due to lost output from federal workers, delayed government spending and reduced demand resulting from those first two. But the CBO goes on to say it is really nowhere near that high.

“Although most of the damage to the economy will be reversed as federal workers return to their jobs, the CBO estimated $3 billion in economic activity is permanently lost after a quarter of the government was closed for nearly 35 days,” CNBC reported, desperately trying to make it seem as though there was economic significance to the shutdown. Media use the big number in the headlines and leads, but it is irrelevant. Only the net number is what counts: $3 billion.

Even the CBO report’s narrative made clear that, despite hyperbolic media attention, the government shutdown was a big snoozer when it came to economic impact.

“Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business,” the report said. “Some of those private-sector entities will never recoup that lost income.”

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So to get this straight. Four hours of football and an entertainment halftime show created nearly five times as much economic activity as was lost due to the month-long partial government shutdown.

It’s almost as if hundreds of thousands of bureaucrats not showing up in big drab government buildings to push papers, regulate small businesses and grind things slowly for a month didn’t hurt the economy. In fact, based on the job numbers Friday, the bureaucrats’ absence may actually have boosted things.

One downside to note: About 17 million people are expected to call in sick today, the day after the Super Bowl, with the pigskin pox. I’m going to suggest a lot of that is hangover related. That, along with all of the conversations about the game during work hours, could hurt economic output by $4 billion.

The 17 million calling in sick sounds pretty solid. But the $4 billion in economic impact seems a bit squishy considering they are trying to quantify the economic impact of five minutes here and there on the game — when there is no AB comparison given that people engage in water cooler talk year-round.

Rod Thomson is an author, host of Tampa Bay Business with Rod Thomson on the Salem Radio Network, TV commentator and former journalist, and is Founder of The Revolutionary Act. Rod also is co-host of Right Talk America With Julio and Rod on the Salem Radio Network.


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Categories
Capitalism Economics Media

Teen Vogue Assails Capitalism, Rakes In Profits; Writers Clueless

Rod Thomson

Some ironies are almost too forehead slapping to even begin writing about. Nevertheless, we persisted.

Teen Vogue is a nicely profitable enterprise aimed at teenage girls — and probably those who want to still be seen as teenage girls — by writing stories about the newest and best products that are “in” for teen girls. Cool products. Hip products. Make you beautiful products. And some politics and a load-bearing wall of celebrity gossip.

Then they sell ads for products, including those they write about, along with the normal bevy of online ads, and make money through those advertisements.

They know their market, they understand the demand, and they meet that demand with a supply of content written by their staff, and advertisements sold by their ad department and others who want to reach their readers. This is just about as classic a case of capitalism at work as you see — and see thousands of times daily.

Every part of Teen Vogue magazine oozes capitalism and the glories therein.

Meanwhile, at the insane irony desk of the magazine, Teen Vogue published an article in April trashing capitalism and saying there are better forms of economics, such as — you guessed it! — socialism.

Then, two days ago, the Teen Vogue Twitter desk — presumably people being recompensed in return for providing social media services, so still an irony-free zone — decided to resurrect this powerful piece of economic thinking by tweeting it out again with this fact-free pitch:

Can’t #endpoverty without ending capitalism!

Yes, of course, this is a wildly far-left magazine. For instance, headline today: “Kanye West Is What Internalized Racism and Misogyny Looks Like.” Sure, he looks just like the racism of the Jim Crow South and misogyny of Islamic radical nations where women cannot be seen in public and their husbands can beat and rape them at will. That’s Kanye!

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It’s all part and parcel with the indoctrination into leftism going on at American universities outside of the STEM fields — which is almost undoubtedly where Teen Vogue gets their writers.

It’s also worth noting that as the magazine shifted to heavily online, it also shifted to add a heavy dose of politics to its teen fashion staple. ‘Tis too much to dissect the entirety of nonsense in this article. But a few points are worth making. Author Kim Kelly explains capitalists this way:

Individual capitalists are typically wealthy people who have a large amount of capital (money or other financial assets) invested in business, and who benefit from the system of capitalism by making increased profits and thereby adding to their wealth.

That is just the worst understanding of capitalists. The vast majority start with nothing or almost nothing, work very long hours and, sometimes, are successful with their businesses. Some go into debt or re-mortgage the house to start a business.

Teen Vogue is headquartered in New York, one of the capitalist wonders of the world. I wonder if the author stopped at the bagel stand on the sidewalk for breakfast, or maybe the little deli for lunch. Those are capitalists, like the little place that does her hair. Pretty sure they didn’t launch the bagel cart or any of the others with a “large amount of capital.”

Next sentence:

A capitalist nation is dominated by the free market, which is an economic system in which both prices and production are dictated by corporations and private companies in competition with one another…

Well, she managed to write something even less informed in that very next sentence. Prices and production are not dictated by corporations and private companies — they are dictated by the demand for product and the competition combined with consumer willingness to determine the price and production levels. It’s almost like she doesn’t really know what the words “free market” mean.

There’s 1,800 more words of this ignorance, but I won’t torture you with them.

In addition to the fact that Teen Vogue — including its fairly ignorant writers and social media people — are directly participating in capitalism, they are literally inundated with the joys, comforts, benefits and luxuries that have been created by capitalism.

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One can’t help but wonder if they are even aware of it.

They live in housing built by capitalists who were supplied with all of the necessary materials by a train of capitalism including wood, cement, nails, glass, etc. Presumably they have furniture, also brought to them by capitalists. They checked their smart phones when they got up and used them all day — smart phones provided to them through capitalism. They drove to work or rode public transit to work or rode a bike to work all through capitalism. (Yes, public transit: who built the trains and buses, who supplied all the materials to do that, who transported them, etc.? Capitalists!)

Their place of work, built by capitalists. Their computers? Made by capitalists. The clothes and shoes they’re wearing? Made by capitalists. The food they’re eating? Provided by capitalist farmers through dozens of middle capitalists to capitalist restaurateurs. Wearing glasses? Capitalists. Taking an ibuprofen for a headache? Capitalists. Going on vacation? So many capitalists will make that happen for you!

Their historically comfortable, luxurious lives are entirely thanks to capitalism thriving on a foundation of individual liberties — both of which their socialism would do away with. (See: Venezuela, Cuba, Soviet Union, Vietnam, North Korea and so on.)

And then there is the obvious fact that the Tweet itself is antithetical to all the data we have. Capitalism has brought literally billions of people out of poverty in the past 50 years.

The number of people living in extreme poverty worldwide declined by an astonishing 80 percent from 1970 to 2006, at the same time that capitalism and free enterprise were taking off in countries around the world that had not wholly participated before. This is measured by the number of people living on a dollar a day or less, which fell from 26.8 percent of the world’s population in 1970 to 5.4 percent in 2006.

The writers over at Teen Vogue may not much care for this sort of factual data. But here’s some more anyway.

Global poverty by the same measurement captured 94 percent of the world’s population in 1820. But with industrialization (capitalism) and globalization of markets, and now the rapid technological advances (capitalism) that share has plummeted to 17 percent. In the shorter timeframe, that global poverty rate was still 53 percent in 1981, meaning the fall to 17 percent now is “the most rapid reduction in poverty in world history,” according to Oxford University’s Martin Roeser, the source of this data.

The Daily Wire has more data points here. Suffice to say, the tweet and article are demonstrably wrong.

It’s just sort of head-smacking that the editorial content providers cannot see the enormity of benefits that have accrued to them because of capitalism. Unfortunately, it appears according to polling that their readers cannot either.

Rod Thomson is an author, TV talking head and former journalist, and is Founder of The Revolutionary Act. Rod is co-host of Right Talk America With Julio and Rod on the Salem Radio Network.


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Categories
Economics Federal Debt Truth

Why Inflation Is Minimal Is Why The Middle Class Is Struggling

By Victor Sperandeo

From 2008-2018, U.S. debt virtually doubled while the M2 money supply compounded at 6%. This should have caused rapid inflation. It didn’t. In fact, inflation decreased to 56-year lows during the period from 2009 to 2017.

The Federal Reserve and leading economists say they don’t know why. Here’s the explanation.

To have inflation, commodity prices must perform better. Commodities are non-correlated to stocks and bonds while they are highly correlated to inflation, volatile interest rates, and high or rising GDP growth rates. All of these were at historic U.S. 240-year lows over the last nine years. Using the CPI to represent inflation, inflation made continuous new lows ending in 2017 at a compounded rate of 1.61% on a 10-year rolling annual basis. The five-year rolling annual rate also made new lows but has since recovered by 7 basis points. Since 1961 the five-year low was 1.36% (2012-2016), but now from 2013-2017 is 1.43%.

The reasons for the decline in these economic barometers were the policies of President Obama.

The “change” brought to the nation included increased regulations (Todd-Frank), higher taxes for everyone (the end of the Bush tax cuts in 2012), and the creation of Obamacare. The ACA was effectively a huge tax on the middle class disguised as an insurance policy, which was then redistributed to the lower class, who got healthcare insurance policies at way below the market prices, by subsidizing the insurance companies. As a consequence, Obama transformed America into a virtual Corporatist/quasi-Socialist State.

Today the U.S. is essentially an oligarchy of party leaders and federal judges, who are controlled and heavily influenced by multinational corporations and outside special interests. They operate much like cartels. In short, we now have government similar to that of a banana republic.

Therefore, with 0% nominal Fed Funds rates for seven years and three large Quantitative Easing (QE) programs, combined with an increase in the Federal Reserve Balance sheet from $800 billion to $4.5 trillion, why isn’t inflation at least approaching historic compounded levels of 3.10% that were seen between 1913 and 2017?

The primary reason is: when you execute extraordinary amounts of printing of paper money via QE, i.e. buying government debt, and other assets, such as mortgages, the cash created “out of thin air” goes only to the very few investors who own those assets in large quantities. No inflation occurs, as those investors don’t spend that money, but rather invest it in assets such as equities, real estate, other debt and art. Prices for these assets rose to historic levels as a consequence.

This is called “wealth creation” instead of inflation. This Fed monetary and tax policy is also encouraging corporate stock buyback programs, which caused the velocity (or turnover) of money (via M2) to decline to the lowest level in 60 years, or 1.4 times. This, coupled with a lack of investment in new plant and equipment — causing capital expenditures to decline — resulted in a major decline in productivity to 0.7. That in turn led to stagnant medium incomes over the last 20 years. (This doesn’t take into account the Free Trade thinking that caused the 19.8 million manufacturing jobs to decline to 11 million since NAFTA was enacted.)

If the bulk of people don’t get the money, they can’t spend beyond their revolving credit card limits. Household non-revolving credit debt (house equity and auto loans) is at record highs as of January 2018.  Total household debt is $13.2 trillion, also a new record. Credit card interest rates average 19.9% and range from 9.9% (often only as a promotional rate) to 29%.

Contrast this to corporate debt which despite being at record levels costs around 3% to 3.25% on seven-year term debt. This is the rate corporations are paying to borrow money to buy back stock. Inequality exponentially increases while the middle-class standard of living steadily declines; meanwhile low but steady inflation still takes its toll (for which nobody blames the Federal Reserve?).

Since 2008, “financial repression” has been in effect with interest rates below inflation. This is why stocks go up but no major actual inflation occurs. In effect, it is a method of government theft of individual savings; inflation is a stealth tax. So, people hoard more as they earn less and their savings decline. For example, the 90-day Treasury Bill yield at the end of March was 1.71%, while the CPI was 2.36% year over year.

This makes government and corporate borrowing virtually free. Historically (since 1926) T-Bills have traded at a compounded rate of 70 bps above CPI, not 75 to 50 bps below CPI. This is what is meant by “Government is created to serve the rich, while enslaving the poor.”

Moreover, these increases in government debt are not sustainable.

This is an existential threat to our Constitutional Republic’s political structure. Normally a nation with a printing press never defaults by bankruptcy, but rather by hyperinflation. This in turn historically has led to authoritarian dictatorships (see Napoleon and Nazi Germany). I should also mention schemes of “Universal Basic Income” such as Facebook CEO Mark Zuckerberg is proposing would most likely cause hyperinflation, as people would get free money estimated at $36,000 a year per family, and certainly they would spend it.

In June 2017 the CBO projected that total stated debt would grow to $30.7 trillion in 2028 (up from the current $21 trillion). However, in March 2018 that estimate was increased to $33.2 trillion, or an additional $254 billion per year. Interestingly, they also raised their revenue estimate over the same period by over $1 trillion (even after the latest tax cuts). So, these higher debt projections already take into account increasing revenue! This assumes no recession during the period, which I estimate would increase debt by additional $12 trillion (making U.S. debt $45 trillion). Not to mention our unfunded liabilities which could be anywhere from $100 trillion to $220 trillion in 10 years going forward.  

It should be noted that the longest recovery since 1854 — when the NBER began to keep track of such statistics — was 120 months. We would reach 121 months in our current recovery in July 2019. To think (via the CBO projections) the U.S. can go 10 more years in recovery (for a total of 227 consecutive months) is like assuming the U.S. will win the lottery; it may not be impossible, but it is highly unlikely. That is, unless you’re a politician (or the CBO) who lies for a living.

Certainly, the borrowed times we live in will not be the future we assume we know.

At the bottom line are two fallacies. The first is the idea that paper money wealth will protect you, and what you see in asset prices around the world is accurate. Interest rates are manipulated by governments to the extremes in the history of civilization. Therefore, we come to the second fallacy: the belief that prices are real — based on a real foundations.

How is this mindset allowed to persist, and why is this growing danger consistently ignored? This kind of thinking is based on “perception policy” to keep the sham going. The situation was best described by Ayn Rand in her novel The Fountainhead: “The hardest thing to explain is the glaringly evident, which everybody has decided not to see.

Victor Sperandeo serves as the President and CEO of Alpha Financial Technologies, LLC (AFT), is a founding partner of EAM Partners L.P. (EAM), and serves as the President and CEO of its general partner, EAM Corporation. Sperandeo is a trader, index developer, and financial commentator based in Dallas, Texas. He has over 45 years’ Wall Street experience trading both independently and for many notable investors. He is widely regarded as an expert in commodities, particularly in the energy and metals sectors. His market crash prediction in a September 1987 Barron’s interview earned him great recognition and highlighted his deep understanding of financial markets. Author of several books detailing his philosophy: Trader Vic — Methods of a Wall Street Master; Trader Vic II — Principles of Professional Speculation, and Trader Vic on Commodities: What’s Unknown, Misunderstood, and Too Good To Be True. He was a 2008 Inductee into the Trader Hall of Fame by Trader Magazine and included on Ziad Adelnour’s list of top 100 Wall Streeters.


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Categories
Economics Economy Taxes Trump Truth

Leading Economist Now Says Trump Policies Are Restoring America’s Economy

Rod Thomson

Sean Snaith is not a household name but he is one of the nation’s top economists and highly regarded in economic circles for the depth and accuracy of his projections.

So much so that he is on multiple national economic forecasting panels, including The Wall Street Journal’s Economic Forecasting Survey, the Associated Press’ Economy Survey, CNNMoney.com’s Survey of Leading Economists, USA Today’s Survey of Top Economists, the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, Bloomberg and Reuters.

All this is stated upfront because what he says rightly carries weight in a lot of influential circles, and probably should outside those circles. And he is now supremely optimistic about the American economy going forward.

He made projections last year he said were based on the assumption of a Hillary Clinton victory and her policies being instituted — because that is what all of the political pundits told him. When Trump won, he says, he had to re-think things. He went back to the drawing board and began a new set of calculations which he is constantly updating. The differences are dramatically better for the American economy and the American worker.

In fact, to hear Snaith speak recently to a large Florida economic development group, its almost jarring how much of a MAGA Trumper he sounds like — well, on economic policies anyway. And the projections he announced were almost goose-bumpy good.

Snaith said the tax cuts and deregulatory efforts will generate a 3.5 percent national GDP this year — much higher than at any point since before the Great Recession — and will remain very strong at least through 2020. He said this is more where the American economy should be and will be (barring any major, unforeseen disruptions.)

That has positive implications for American workers. The jobless rate is hovering at about 4 percent right now, but he predicted that as policies really start generating economic activity, the unemployment rate will fall to 3.4 percent by late 2020 — and that is even as the labor participation rate increases. So even as more Americans re-enter the job market after giving up for the past six years or more, they will all be absorbed into new jobs, plus some.

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This tight labor market means there will be competitive market pressures driving wages and salaries specifically at the lower ends to begin with. In fact, that is already beginning to happen.

“Markets are magical and will solve the labor problem” by increasing wages to attract workers, he said. “The lowest end jobs are seeing the fasted income growth rate right now.”

Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, said there are two driving policies at work here. The Tax Cut and Jobs Act and the ongoing regulatory relief.

The key elements of the tax reform package boosting the economy include: lower income tax rates; higher standard deductions; expansion of the child tax credit; reducing the highest corporate tax rate in the developed world from 35 percent to 21 percent; tax breaks for small businesses; and a one-time tax break to 15.5 percent to repatriate American companies’ offshore profits — which Apple already announced they will take advantage of to the tune of $252 billion.

The tax package will increase take-home pay for American workers — something that has not happened since President Bush was in office — and will generate more consumer spending, stimulating the economy and GDP growth. American companies will be more apt to keep their profits at home and reinvest a portion of them — several have already announced their intentions with plant expansions and sharp increases in employee pay.

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But Snaith sees deregulation as every bit as important because of the tremendous drag that excess regulation places on companies and the economy. “Deregulation is the special sauce that will juice the economy,” Snaith said.

The Code of Federal Regulations exploded from 140,000 pages in 2005 to 185,000 today, he said. Those endless rules strangled the economy by trillions of dollars as companies spend so many resources on compliance rather than innovation, expansion and employee pay. Last year, the Trump administration took 22 deregulatory actions for every one new regulation, saving about $8 billion in regulatory compliance costs alone.

Interestingly, Snaith is not worried about a trade war undercutting his economic projections because he does not think there will be one.

“Are we going to have a trade war? My answer is no. Everybody knows that no one wins in a trade war,” he said. However, he thinks that some of the nation’s trade deals do need renegotiating because they were unbalanced, and China was cheating on them.

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“If you are a manufacturer, you are not on an even playing field with China,” he said.

Snaith is about as mainstream as you can get in the economics field. And his projections record is stellar. His optimism is worth paying attention to.

Rod Thomson is an author, TV talking head and former journalist, and is Founder of The Revolutionary Act. Rod is co-host of Right Talk America With Julio and Rod on the Salem Radio Network.


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Categories
Economics Video

VIDEO: Liberal Big Government Drives Low Wages, Income Inequality

During the past seven years, we’ve endured the worst U.S. economic recovery in the known history of recoveries. This is a plain and indisputable. The worst ever. Did this have something to do with President Barack Obama’s policies? Of course it did.

Rod Thomson goes through how on an ABC panel with a liberal Democrat professor and an economics professor.

 

Categories
Economics Economy Minimum wage Politics Truth

IN-DEPTH: Flamingly Bad Big Government Drives Low Wages

Rod Thomson

During the past seven years, we’ve endured the worst U.S. economic recovery in the known history of recoveries. This is a plain and indisputable fact by the measurements of all economic recoveries. The worst ever.

Did this have something to do with President Barack Obama’s policies? Of course it did. It was no coincidence that the wild expansion of government in both spending and regulation put a damper on business growth and therefore economic growth. That’s a direct causal effect.

This spending and regulatory binge also played a role in income stagnation and, yes, in one of today’s favorite bogeymen: income inequality. The case for this is fairly straightforward to show, but you will be hard-pressed to find it in the mainstream media.

First, let’s be crystal clear that the American economy really has been sick since 2009. From 2010-2016 we had the objectively worst economic expansion in history, which is strange because typically, a deep recession such as the one we had starting in 2008 is followed by an equally powerful expansion. There’s a strong relationship between depth of decline and height of recovery.

Until this time.

President Obama was the first president without a single year of 3 percent real GDP growth while in office. Ever. GDP (Gross Domestic Product) is the only real measurement of the overall growth of the economy. But wait, there’s more. Annual economic growth during 2010-2016 was a full point less than overall growth from 1965-2010. So even including all of the recessions in those decades — including Jimmy Carter’s malaise, the dotcom bust and all the rest — that 45-year period still beat the Obama recovery years. By a long shot.

During the same 2010-2016 period, growth in real personal income and wages also dragged well below the historic average. Income inequality increased during this time. But both of these have been a long-term trend that just ratcheted up during the Obama years.

Weak economies overall drive income inequality because it’s people at the lower ends that are hurt the most. But there are multiple other reasons.

 

Why was the recovery so bad?

Let’s step back for a second.

There are three factors driving an economy: labor force growth, capital growth and productivity. All three happen during a strong economy. The labor market expanded rapidly during this crummy recovery, so that was not a problem factor. But capital formation — money to invest in startups, expansions, machinery, innovation — grew at half the historical rate and productivity grew at only about one-third of the normal rate.

Capital. Without access to money for investment, there was less innovation, less growth and expansion and fewer new businesses. So existing businesses were somewhat stagnant, and they faced less competition that would have bred innovation to compete. Without that, new markets and industries were not explored and the economy hobbled through a recovery that barely stayed out of recession at several points.

Capital was dramatically restricted through aggressive government laws designed to avoid the kind of subprime real estate bubble and bust in 2007 that led to a near-financial collapse and the recession. The primary law was Dodd-Frank, which mandated higher capital levels for all banks — including community banks, which were not a driver of the subprime crisis.

Further, the law added so many layers of regulations to an already heavily-regulated industry that compliance costs for banks have doubled since Dodd-Frank went into effect. Compliance costs alone are now figured at $70 billion annually — or nearly one-quarter of a bank’s total expenses — according to Federal Financial Analytics.

Banks need a level of regulation. But too much regulation stifles their ability to lend.

And without going into too much detail, the Federal Reserve Board’s money supply policies included loaning money to banks at such a low rate (essentially, 0 percent interest) that banks could invest in guaranteed financial instruments, such as U.S. Treasuries, and make guaranteed money with zero risk. Profits at zero risk are hard to pass up and that policy by the Fed kept billions of dollars out of the hands of business.

The truth is that businesses being able to access money from banks and investors is critical to a strong economy.

Productivity. Productivity can be measured a few different ways. The Bureau of Labor Statistics, however, puts it as: “Productivity is measured by comparing the amount of goods and services produced with the inputs which were used in production. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.”

During strong economic growth, productivity increases. However, with fewer businesses and the associated lack of innovation and expansion, there were fewer options to be promoted, all of which kept productivity lower. More people wanted jobs, but the jobs they were getting were the same type and level as before, which meant their productivity was about the same.

This, of course, also leads to income stagnation specifically for the lower and working middle class.

 

More economy-wrecking government

Dodd-Frank deeply restricted businesses’ ability to get investment capital. But it was not alone in throwing anchors around the neck of economic growth.

A second major anchor was the Affordable Care Act, a.k.a. Obamacare, which turned out to be neither affordable nor about care. Obamacare added an enormous mandate on businesses to provide an increasingly expensive benefit, and it did so with mountains of paperwork detailing what all must be provided. Even small businesses with 50 employees frequently had to add a full-time position just to understand and comply with this law.

Obamacare’s onerous costs came at precisely the same time that Dodd-Frank and the Fed were making businesses’ access to capital almost impossible — a conflagration of government intrusions.

As the government adds more requirements on employers to offer benefits and comply with regulations, employers have less money left for actual wages. Obamacare was a double-whammy in that it required the extra costs but then also screwed up an already malfunctioning marketplace and prices soared even faster.

And of course the Obama administration was renowned for adding an enormous number of executive branch regulations through the EPA and other administrations. With this understanding, it’s a tribute to the capitalistic drive of Americans that the nation could mount any sort of economic growth at all.

 

Illegal immigration is a real growth roadblock

This is not hard to understand, just hard for multiculturalists to understand.

Millions of uneducated, unskilled people from Mexico, Honduras, Guatemala, El Salvador, etc. who do not speak English not only take low-end jobs from Americans, but they also depress the wages at the bottom because ridiculously low hourly rates by American standards are still better than anything they can make in their dysfunctional third-world home countries. Obviously, that’s why they came here.

In the past 30 years, the United States has absorbed 40 million foreign-born adults and another 20 million adult children of immigrants — legal and illegal — giving the U.S. an endless stream of low-wage labor. With that massive pool at the bottom, there will be no increase of wages for the foreseeable future. Economics.

Professor George J. Borjas, a highly respected economist at Harvard’s Kennedy School of Government and maybe the world’s foremost expert on the economics of immigration, has found that: “If immigration increases the size of a group by 10 percent, the earnings of native workers in that group fall by 3-4 percent.”

Interestingly, this conceptually works at the top just as it does at the bottom.

So consider this and laugh bitterly if you like: if you really want to close income inequality gap, our immigration policy should be the precise opposite of what it is. We should greatly increase the legal immigration of doctors, lawyers, engineers, MBAs, mathematicians and all but stop immigration at the bottom end. That would drive up incomes at the lower levels for lack of competition — including for newly arrived workers — but it would create wage stagnation at the top end by bringing in competition, and the income gap would close.

Of course, it will never happen. Consider who makes up Congress. Mostly lawyers and some doctors and MBAs who all have children pursuing similar high-end careers. And we have those vested in large-scale immigration in many industries and the Democratic Party. Not going to change.

 

Minimum wage laws just make it all worse

The solution to the problems offered by big-government progressives is — more government intervention.

The problem is they do not honestly assess the underlying foundational problems, but just see a symptom they perceive as a problem and go after that symptom in a vacuum. The causes listed above are the drivers of low-end wage stagnation. But rather than ratchet back those drivers, they pile another government solution on top of the government-caused problems — one that is already proven to make the problem yet worse.

It’s almost like there is a formula at work.

Nonetheless, the solution now being promulgated is to raise the minimum wage to $15 per hour. #Fightfor15 is the hashtag and rallying cry festooning the protest signs by people wholly unaware that the market might get the wages there if the immigration policy flipped and less money was required on failing benefits programs.

The obvious results of setting the minimum wage where central planners think it ought to be, and not where the market says it is, is that businesses will find ways around it. Legal ways. They will be forced to.

The first option: Automation. Where robotics and self-serve kiosks were too expensive at $8 per hour per worker, they no longer are at $15 per hour. They have now become less expensive than many workers. So companies invest in those, which results in minimum wage workers, and even those above that, being out of work completely. Workers lose jobs. $0 per hour.

The second option: Move. Companies pick up and move operations to a jurisdiction that does not have artificially high wages so they can compete effectively. Workers lose jobs. $0 per hour.

The third option: Downsize.  Companies either retrench at a smaller size or go out of business. Workers lose jobs. $0 per hour.

And guess what? This is exactly what has been happening in the uber-progressive city of Seattle, which has adopted the $15-per-hour minimum wage.

The city commissioned a study by economists at the University of Washington and published by the National Bureau of Economic Research. Those study results stunned progressives, but really just found basic economics and common sense at work: Low-wage workers’ incomes actually dropped, substantially, falling an average of $125 per month.

And this was only at a $13 hourly minimum wage, as the Seattle law ramped it up to $15 over a few years. If they allow it to continue, which the marching placard people want, it will continue to worsen the situation for the lowest end workers in Seattle through automation, movement and downsizing.

And the other component that will get worse is the income inequality bogeyman. Anyone want to guess how big government progressives will want to fix that?

Rod Thomson is a former journalist, author and is Founder of The Revolutionary Act.